Draft letter casts doubt on savings claim for LGPS pools

Hampshire County Council has drafted a letter calling on central government to delay its plan for pooling within the Local Government Pension Scheme (LGPS).

Room151 has seen a copy of the letter, dated 28 July, which is understood to be under discussion both within the council and with other local authorities.

In its letter, Hampshire asks the government to reconsider the formal requirement for individual funds to pool their investments.

Instead, it says, funds should be given two years to demonstrate they can achieve reduced investment management costs, maintain strong governance and access infrastructure investments, where appropriate, through collaboration that stops short of requiring the cost and risks of formal pooling.

The letter says: “It is Hampshire County Council’s belief that the main aim of investment pooling, reducing investment management costs, is set to be successful without the requirement to formally pool all investments, as the investment management industry is changing its practice to recognise the LGPS as a single client and significantly reduce fees.

“All previous assessments have taken historic costs as a baseline for a cost/benefit analysis of pooling, and in doing so significantly overestimate the savings that pooling will achieve (and will have to pay for the cost of transition and the pooling infrastructure) in comparison to the savings that funds can now achieve individually without formal pooling.”

The draft letter says that many investment managers are already offering a single LGPS fee rate, regardless of pooling.

The letter also argues that there is no evidence that pooling will improve governance of investment decisions in the LGPS and could lead to unnecessary churn in investment manager changes.

In addition, focusing on formal pooling could “delay the achievement of savings in investment management fees, if the focus is on dealing with establishing a CIV, rather than simply addressing investment manager arrangements and contracts,” the letter says.

A spokesman for Hampshire County Council said that the letter was still under discussion and no decision has been taken on whether to send it.

In July, DCLG official Andrew Cornelius told a conference that the government is still committed to the pooling project.

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